Good until the Last Drop

Transcription

1 Good until the Last Drop A Practitioner's Guide to Costing, Pricing, and Financing Reuse Tony Bagwell Vice President/Senior Economist HDR, Inc. Based on a New Book by HDR Just published by APWA. Good until the Last Drop, A Practitioner's Guide to Reuse Guidance for forming, operating, and funding the Reuse Utility: Defining Reuse Demands Engineering Design Costing, Pricing, and Financing Feasibility Organization and Management Customer Relations Background The Reuse Utility can take many forms: Municipal State Special District Federal County Private & Other Based on recent information, about 70% of reuse utilities are municipal, followed by 12% special district. Some produce reuse supplies, others purchase. By far, the largest number of utilities produce tertiary/filtration quality supplies. Many also disinfect.

2 Economic and Financial Nuances Related to Reuse Dividing line between utilities isn t always clear. Several key reuse benefits are indirect and realized over the long term. The next best alternative may be readily available. Legal uses and the customer base may be restricted. In many cases, the goal may be to promote, rather than deter, the use of reuse supplies. Seasonal sales may be even more pronounced. Focus on Costing, Pricing, & Financing Cost of Service and Cost Allocations Revenue Requirements Pricing Strategies Sources of Funds Cost of Service and Cost Allocations Disposal vs. Reuse Reuse Water Quality Supplied Enterprise Fund & Cost Center Accounting Full Resource Value Recognition

3 Disposal vs. Reuse Where do you draw the line between the wastewater utility and the reuse utility? Allocated common costs Increment capital and operating costs beyond discharge requirements. Reuse Water Quality Supplied How does your quality of supply impact your design costs and customer base capture? One system of lesser quality and lower costs for certain select uses? One system of higher quality and higher costs for broader uses? Dual piping system? Enterprise Fund & Cost Center Accounting A closed system of accounting so cost of service can be identified and rationalized. Cost of service for functional locations. Clear delineation of public vs. private costs. Ability to pledge revenue for debt.

4 Full Resource Value Recognition Consider the resource value of reuse water. Meets basic water demand for some uses. Provides additional nutrient values. May help forego more expensive sources of supply. Don t give it away at the cost of disposal. Start now to establish a full resource value price before the next user appears. Determine Revenue Requirements Consider Non-rate Revenue Debt Service Coverage Use of combined utility pledge to help debt fund reuse infrastructure. Operating Reserves For use in meeting unexpected expenses Financial support to address: Seasonal sales Wet weather Reuse Pricing Strategies Cost of Service Distinctions Difference in facilities used and useful. Cost of serving individual customers may be more apparent to customers in a small system. Quality of water supplied. Differences in customer use patterns affecting average versus peak capacity.

5 Reuse Pricing Strategies Rate Design Many reuse utilities charge customers differently based on usage type or facilities used. What type or types of rate designs are appropriate? Uniform rate (most favored) Contract rate (frequent) Block or seasonal rates (some, but not many) What policies are being promoted? Full cost recovery? Overall water conservation? Incentives for use? Reuse Pricing Strategies Benchmark reuse pricing with potable water 55% of utilities responding to a recent survey indicated reuse pricing between 75% to 90% of the price of potable water with some pricing as low as 20% to 50%. Only 14% reported using cost of service as the basis for setting reuse rates while 43% based rates on promotional or percent of potable water cost criteria. 55% said reuse rates were being subsidized by other utility customers or interfund transfers. Funding Sources Internal Funding Rates Impact fees Subsidies External Funding Low-interest Loans Market borrowing Grants Cost-sharing

6 Good until the Last Drop A Practitioner's Guide to Costing, Pricing, and Financing Reuse Tony Bagwell Vice President/Senior Economist HDR, Inc.

7 Recycled Water Customer Development What???? John Kennedy, P.E. Sr. Project Manager HDR, Inc. Customer RW Supplier = RW Retailer/Purveyor RW Retailer/Purveyor = End-User End-User = often PW Customer Types: (any non-potable demand) GW Recharge/Intrusion Barriers Irrigation (landscape-agriculture-other) Industry (process-h/c-other) Environmental (LSD-wetlands-other) Development - Identifying and Procuring RW Users Reuse Ordinances/Policies On-Site Rules/Regulations Conversion/Site Retrofitting Permits/Inspection/Monitoring User Relations/Education/Outreach Financial Incentives

8 APWA So. California RW Case Study The Numbers 2 Wholesalers - 18 yrs (18 retailer s) 815 sites 10 Retailers yrs (20+ea) 4,460 sites 10 Municipalities + 18 Water/Utility Districts Total RW Use = 67,250 AFY (95% - LSI) 72% of Total So. Ca. LSI Market 54% of State s LSI Market 11% of Total RW Market (600,000 AFY) Findings customer development Reuse Ordinance/Policies (12:12) 100% Onsite Rules/Regs. (10:11) 90 Outreach/Awareness (10:12) 85 PW Customer Marketing ( 8:10) 80 C/Retrofit Tech Support ( 8:11) 75 End-user classes/courses ( 8:12) 67 $$ Conversion Incentives ( 5:11) 45 CD Service Contracts ( 5:12) 42

9 Findings - financing All 12 agencies use a broad mix of sources and mechanisms for funding RW facility construction (capital improvements) and system operation. Capital Debt (11:12) 92% Grants/SRF Loans (10:12) 85 Bonds/COPs/other (11:12) 92 Subsidies/Stakeholders ( 9:12) 75 Investment-to-Date $5M 150M ($35M) More Findings - financing Expenses (O&M & repayment) met by combination of revenue sources: % RW sales (12:12) 100 Connection fees (11:12) 92 From WW/PW rates ( 5:12) 42 Property taxes ( 3:12) 25 Improvement fees ( 2:12) 17 Regional incentives (offset of alt. WSD Cost) - all Southern California Case Study Water Range, $/AF Avg., $/HCF PW Retail Rate 650-1, RW Retail Rate 400-1, Discount, % Alternative Supply 450-1, RW Incentives

10 Conclusions: Essential Program Components Overall Water Resource Fit Realistic/Practical Business Plan Proactive Customer Development Outreach-Awareness-Public Relations Voluntary Participation = Improves Success! Financial Support/Incentives $$ Incentives On-site Retrofitting Costs $2,000 - $30,000 per site cover upfront w/2-7 yr payback 0 or low-interest loans Discount from PW price 0-55 percent (0-85 statewide) No surcharge on PW during shortages Conservation credits Conclusions (final) So. Ca. Maturing Market: 2-3% per annum demand growth 5-100% increase over next yrs New RW Programs/Projects: High growth/development areas Limited PW supply options Increasing cost of WW treatment/disposal Integrated regional water resources management